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Commercial Real Estate Investment from High Net Worth Individuals on the Rise

3/31/17

Demand for U.S. commercial real estate assets from High Net Worth Individuals (HNWI)—those with more than $1 mil in liquid assets—rose in 2016 to $10.3 bil, according to the latest research from global property firm, CBRE Group Inc. This marks the highest level since 2013.

Multifamily had the highest investment volumes from HNWI—in 2016 ($3.5 bil), overtaking retail ($3.2 bil), which was the most favored sector in 2015. In 2017, 37 percent of HNWI investors show a continued preference for multifamily, according to CBRE Research. This was followed closely by industrial (33 percent), with both retail and office at 12 percent.

“While the HNWI real estate activity only comprises approximately 2 percent of the total U.S. commercial real estate volume, their overall appetite for real estate product remains strong as they search for overall returns,” said Revathi Greenwood, Americas Head of Investment Research, CBRE.

Sixty-nine percent of HNWI investors intend to increase purchasing activity in 2017, according to CBRE’s research. Nearly half (46 percent) expect to keep allocations at the same level, while another 36 percent are expected to increase allocations. In terms of amounts, 86 percent plan to invest up to $500 mil into U.S. CRE assets in 2017.

Seventy percent of HNWI investors cite overall returns—both capital appreciation and income returns—and yield relative to other asset classes as the main motivators for investing in commercial real estate. The risk tolerance of this group is also the same or lower than it was in 2016, with only 9 percent having higher risk tolerance.

Gateway markets such as Los Angeles and New York remain attractive metros for investment among HNWI; however, Atlanta was the top-ranked market, reflecting its strong multifamily market in the city.

“HNWI investors are a good leading indicator for smart investing. They are nimble and focused on relative value across markets. Investors like Atlanta’s projected population growth of 100,000 people per year and headroom for rental upside. Atlanta is also a jobs machine, with 70,000 new positions created last year. Atlanta’s airport, the busiest in the world, is also a huge advantage for attracting employers because of the number of direct domestic and international flights,” said Malcolm McComb, vice chairman, Institutional Properties, CBRE Capital Markets.

In terms of threats, 30 percent of HNWIs are concerned that property is overpriced and a bubble waiting to burst. Nearly a quarter (24 percent) worry about occupier demand being affected by global and local economic shocks, while another 17 percent cite overbuilding leading to excess supply as a threat. Rising interest rates are also an area of concern for 16 percent.

These themes continue at the asset level, with 60 percent of HNWI citing asset pricing as one of the biggest obstacles to investment. Competition from other investors (18 percent) and availability of assets (17 percent) were also obstacles.





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